US Retail Sales Rebound Strongly

January retail sales in the US jumped by the most in almost two years, after two straight monthly declines. According to the Commerce Department, retail sales bolted 3% last month, the biggest increase since March 2021.

Data reveals that American consumers were out in force buying motor vehicles and other big-ticket items, suggesting the economy is resistant to high borrowing costs. Indeed, the broad increase in retail sales was led by motor vehicle purchases, with sales at car dealerships surging 5.9%.

Following the news that monthly inflation rose in January, strong consumer spending could lead to speculation in financial markets that the Federal Reserve will continue raising interest rates through the summer to cool domestic demand.

Strong retail sales numbers have led economists to lift their economic growth forecasts for the first quarter and claim with more confidence that a recession is unlikely. That said, the most cautious analysts are still providing for the small possibility of an economic downturn if the Fed raises interest rates unabated.

The underlying trend in consumer consumption is not as weak as the December numbers indicated, which has now been blamed on consumers doing their holiday shopping ahead of time. However, even considering seasonal adjustment factors, January was still a surprisingly good month. Many economists polled had been forecasting that consumer sales would increase 1.6%, with estimates ranging anywhere from 0.5% to 2.5%.